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What's holding Africa back? Delivering renewable energy in a challenging market.

Africa presents an exciting prospect for investment in renewable energy. Hear the views of investors, developers and manufacturers on the challenges and opportunities for renewable energy in Africa in our report.

Africa presents an exciting prospect for investment in renewable energy. Economic development and democratisation in the region has resulted in increasing domestic and industrial demand for power, with the current levels of investment lagging far behind these fast-growing needs.

The International Energy Agency predicts that the demand for electricity in sub-Saharan Africa will increase by 4.6% annually, and by 2030 demand will be more than double the current electricity production.

In addition to demand growth, renewables technology is driving down the cost of energy production and all 54 African Union countries now have a unified voice in promoting the Paris climate accord. All of these factors have created an environment in which renewable energy development can generate real momentum in Africa – so what's holding the continent back?

DWF in collaboration with Winmark has produced a research report, incorporating in-depth interviews with experts in the region and a series of focus groups to get critical insights into the challenges for developers and investors across Africa.

The report examines all aspects of energy project development and the specific challenges that are holding Africa back, from site selection and planning, finance and bankability, construction and commissioning through to distribution and technology.

Download the report here

Where do the key challenges lie?

1. Site selection, feasibility and planning
  • A stable and supportive political environment is the primary influencer of the success of renewable energy projects in Africa. Developers and investors need to be confident that the political will exists to support and see through pro-renewable policies and initiatives to the end of the project cycle.
  • Selection of a project location should begin with sound fundamentals: a positive business environment, good transport, adequate grid infrastructure and stable and secure off-takers.
  • Identifying effective local partners is key. Extensive networking through existing contacts and visits to regional events will help build local business and political contacts.

Large truck with lights on drives up a hill

2. Finance and bankability
  • Projects have a greater chance of getting off the ground if developers have access to funds at an early stage. Investors can also avoid competition for projects by getting on board quickly, but they are often reluctant to do so because of the high risks and possibility of low returns. This mismatch is one of the main barriers to projects coming to fruition.
  • For larger projects Development Finance Institutions (DFIs) bring capital and strategic strength to developers, but may come with conditions attached; and private investors can be crowded out.
  • Securing a robust Power Purchase Agreement (PPA) is critical to securing third party finance. Developers need to ensure their PPA has mitigated against credit, currency, operational, schedule and arbitration risks. Developers need to make the social and community impact of the project attractive to government and investors.

The sun rises behind a Johannesburg cityscape

 

3. Construction and commissioning
  • Risks at the construction stage are relatively limited and manageable assuming the right people are in place. However, developers should allow generous time contingencies in the construction schedule as it will take longer than planned.
  • Community buy-in is important for construction to run smoothly. Local communities should be reassured about the costs and benefits of a development and be involved in decision-making.
  • Establishing supply lines and a good forwarder who will deliver in remote or hard-to-reach locations is important.

Wind turbines under construction

 

4. Distribution and technology
  • Grid infrastructure is often poor and there is little that can be done to improve it once the project is in progress. This risk needs to be mitigated at the due diligence and financing stages.
  • Grid-operators aren’t necessarily experienced in integrating renewables; they should be consulted at an early stage to help avoid problems.
  • Battery storage technology has significantly improved and costs are coming down. This is enabling renewable energy companies to partner with advanced technologies to offer 24/7 solutions but, further advances in the technology are needed.

Rows of large solar panels

 

Video holding small

What's holding Africa back?

DWF has hosted as series of focus groups looking at renewable energy development in Africa. We asked what is holding renewable energies back and what are the opportunities and challenges?

Download the report
To find out more about the challenges facing renewable energy investors and developers in Africa and discover some of the solutions that are emerging in the market, download our report.
   
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